Subject To vs Seller Finance: What’s the Difference?
Updated: Apr 14
The number one question that I get everyday, on many of my social channels and even from my students is - what is the difference between subject to and seller finance?
The answer boils down to this - debt versus no debt.
Subject To Mortgage vs Seller Finance Properties
When it comes to creative finance in real estate, there’s two popular opportunities for purchasing houses - subject to and seller finance.
In subject to, I purchase a house by taking ownership of the property. This means that I take over the mortgage on the house and pay off the loan.
The mortgage and the loan stay in the homeowner’s name.
This is what trips some people up - the only thing that is put into my name (or rather, the name of my company) is the deed.
While the homeowner’s name is still on the mortgage or the loan, I’m the one who is actually making the payment.
With seller finance, there is no mortgage to pay off. What happens is, I buy the house by paying the seller.
So essentially, the seller becomes the bank and I pay them, like I would if I was paying a bank.
Why Use Seller Finance or Subject 2 Real Estate
When explaining seller finance, the question that always gets asked is why.
Why would a seller sell their house and not get the money right up front?
Well, if a seller sells their property on the open market, for let’s say $290,000, they aren’t going to get that $290,000.
They’ll have to do renovations, pay commissions for the realtor, closing costs, etc. In the end, they may make about $220,000.
However, with seller finance, they do get their $290,000; just not immediately. It’s basically a longer term gain, but they receive a higher number through seller finance.
Selling on the open market is short term gain, but with a lower number.
Subject To, on the other hand, is a way for a seller to get out from a distressed situation. Maybe they can’t afford the payments, they’ve had a medical event, whatever.
Here’s a video example of what I mean:
Both of these strategies are things I use and what I teach my Subto students.
And both of these can help to build up your real estate investing portfolio, while also helping the seller, and eventually, helps the new tenants who move in.
I do have a number of live calls I’ve done with sellers, walking them through the different options for selling their home.
These calls cover a wide variety of homeowners, reasons why they might be interested in either subject to or seller finance, and why they might not be interested.
If you want to learn more about these strategies and the other methods I teach my students or you want to get started in real estate investing, come join our community!